Oil prices extended their decline on Friday after U.S. President Donald Trump abandoned plans for military strikes against Iran, easing concerns that tensions in the region could escalate further following reciprocal attacks earlier in the week.
At 0640 GMT, Brent crude futures were down $2.11, or 2.3%, at $88.27 per barrel, while U.S. West Texas Intermediate crude fell $1.90, or 2.2%, to $85.81 per barrel.
Diplomatic Progress Weighs on Crude Markets
The latest sell-off came after Trump indicated on Thursday that talks with Iran had advanced and that military action was no longer being considered for the time being.
The U.S. president suggested that a peace agreement capable of restoring shipping through the Strait of Hormuz could be signed as early as this weekend, although Iranian officials cautioned that discussions had not yet reached a final conclusion.
Tony Sycamore, market analyst at IG, said: “While this could, of course, be yet another false dawn, the market’s reaction has been both swift and decisive.”
He also noted that despite the recent decline in prices, “as long as the price can hold above support in the low $80s, the risks remain firmly skewed to the upside”.
Hormuz Shipping Situation Remains Uncertain
The Strait of Hormuz continues to be a focal point for energy markets given its importance to global oil and gas flows.
Iran announced on Thursday “the closure” of the waterway, where vessel movements had already been heavily restricted for several months. Authorities in Tehran warned that any ship attempting to navigate the passage could come under fire.
Under normal conditions, roughly 20% of global oil and liquefied natural gas exports pass through the strait, making any disruption highly significant for international energy supplies.
Iranian state media reported on Friday that the country’s forces had stopped a tanker from crossing the strait without prior approval.
Meanwhile, the U.S. military stated on social media that commercial shipping traffic was continuing through the route.
Analysts Warn Against Assuming the Crisis Is Over
Despite the optimism surrounding the latest diplomatic developments, analysts stressed that the situation remains fragile.
In a research note published on Friday, ING analysts wrote: “We would be cautious about assuming that the extension of the ceasefire is a done deal. Even if it is, it could be fragile. And clearly, if nuclear talks do not progress, it could very easily fall apart.”
The bank also highlighted the risk that continued restrictions on oil shipments could tighten the market considerably over the coming weeks.
“We believe the market reaches an inflection point in late July if we do not see oil flows resuming before then. This is when inventory levels and seasonally stronger demand push prices significantly higher towards $120-130 per barrel.”
OPEC Lowers 2026 Demand Growth Forecast
Separately, the Organization of the Petroleum Exporting Countries revised its outlook for oil demand growth next year.
The group cut its forecast for 2026 global oil demand growth to 970,000 barrels per day, down from a previous projection of 1.17 million barrels per day, marking a second consecutive downgrade.
At the same time, OPEC adopted a more optimistic view of longer-term demand trends and increased its growth forecast for 2027.
The producer alliance now expects worldwide oil demand to rise by 1.73 million barrels per day in 2027, representing an upward revision of 190,000 barrels per day from its earlier estimate.
Traders Continue to Balance Fundamentals and Geopolitics
While weaker demand expectations have contributed to the recent decline in crude prices, geopolitical developments remain the dominant driver of market sentiment.
Hopes that Washington and Tehran can reach a diplomatic resolution have helped ease immediate concerns over supply disruptions. However, uncertainty surrounding the Strait of Hormuz and the future of nuclear negotiations means energy markets remain vulnerable to renewed price swings in the weeks ahead.
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